What You Should Know About The Different Procurement Contracts Out There

Let’s face it, procurement contracts can feel like a tussle of terms and formats. Fixed-price, time and materials, cost-reimbursable… It's easy to get overwhelmed.

But here’s the deal: whether you’re buying supplies, hiring services or managing a complex project, the contract you choose can make or break your success. The right procurement contract protects your budget, strengthens supplier relationships and helps you sleep better at night.

So how do you figure out which contract is the right fit? Let’s break it down in a way that’s easy to understand, no legal jargon, just straight talk.

First Things First: Why Procurement Contracts Matter

Every successful procurement process has one thing in common, a solid contract. It sets the rules of the game, clarifies expectations and helps avoid messy misunderstandings down the line.

But not all procurement contracts are created equal. Different situations call for different types. And knowing which one to use? That’s where the magic happens.

Common Types of Procurement Contracts (And When to Use Them)

Here’s a simple guide to the most common procurement contracts and how they work in the real world:

📌 Fixed-Price Contracts: (a.k.a. Lump Sum)

This one’s like ordering a cake, you pay a fixed price and that’s it. Great when your project is clearly defined and there’s little room for surprise. Just keep in mind: suppliers may hike the price upfront to cover unexpected risks.

📌 Cost-Reimbursable Contracts: Think of this as the “we’ll figure it out as we go” option. You reimburse the supplier for actual costs, plus a fee. Perfect for R&D or evolving projects, but without good cost control, it’s easy to overspend.

📌 Time and Materials (T&M) Contracts: You’re paying for the hours worked and materials used just like you would when you hire a handyman. It’s flexible and practical when you don’t know how long something will take. But if you’re not tracking time closely, the bill can grow fast.

📌 Unit Price Contracts: Here, you agree on a price per unit say, per meter of road or per piece of equipment. Useful when quantities may change but the work type stays the same. Transparency is a win, but negotiating the right unit price is crucial.

📌 Incentive-Based Contracts: These contracts say, “Hit these targets, and you’ll earn more.” It’s a win-win when you want suppliers to perform at their best like finishing early or saving costs. But make sure goals are clear and measurable.

Wait, there’s more…some contracts go beyond the usual templates:

📌 Framework Agreements: Handy for long-term deals where you’ll need repeat orders.

📌 Bespoke Contracts: Custom-made for unique or strategic partnerships.

📌 Public Procurement Contracts: These follow strict rules and often require competitive bidding, especially for government projects.

So, Which Procurement Contract Should You Choose?

❔How complex is the project?

Simple needs = simple contracts.

Complex or evolving needs = more flexible terms.

❔What’s your risk tolerance?

What are the risks involved? Do you want to absorb the risks, or should the supplier take it on? Or would you split them across both parties?

❔How important is budget certainty?

Fixed pricing keeps costs predictable. Other contracts offer flexibility but may vary in cost.

❔Do you expect the scope to change?

If yes, choose a contract type that can grow with your project such as time and materials or unit price.

Summarily, don’t just sign whatever lands on your desk. Ask questions, weigh your options and make sure your contract reflects your project’s reality.

Need procurement specific training? Reach out to support@efemini.com and we'll get you sorted.